Research

PUBLISHED PAPERS

Bank Consolidation and Uniform Pricing with Joao Granja

Accepted,  Journal of Financial Economics

When one bank acquires another, interest rates at acquired branches are generally brought in line with whatever rates acquirers offer. Thus, acquirers do not strongly adjust the rates of acquired branches to reflect local gains in market share. We develop a structural model of the banking sector to simulate equilibrium post-merger deposit rates. The simulated rates when acquirers set uniform deposit rates across all branches best match the observed changes in deposit rates. Antitrust authorities sometimes force acquirers to divest branches to contain local market concentration levels. Our counterfactuals suggest that with uniform pricing, some divestitures could harm consumer welfare. 

JUE Insight: The Geography of Pandemic Containment with Elisa Giannone, and Xinle Pang

Journal of Urban Economics, vol. 127, 2022

How does interconnectedness affect the pandemic? What are the optimal containment policies within and between states? We embed a spatial SIR model into a multi-sector quantitative trade model. We calibrate it to US states and find that interconnectedness increases the death toll by 99,300 lives. A local within-state containment policy minimizes welfare losses relative to a national policy or to one that reduces mobility between states. The optimal policy combines local within- and between-state restrictions and saves 165,500 lives. It includes a peak reduction in mobility of 33%, saving approximately 42,000 lives. Different timing of policies across states is key to minimize losses. States such as South Carolina might have imposed internal lockdowns too early while imposing travel restrictions too late.

WORKING PAPERS

Unpacking Moving: A Quantitative Spatial Equilibrium Model with Wealth with Elisa Giannone, Qi Li and Xinle Pang 

Reject and Resubmit, Review of Economic Studies

We argue that incomplete markets and income risk explain a large fraction of moving rates, especially for low-wealth individuals. We reach this conclusion by developing a quantitative dynamic spatial equilibrium model with endogenous wealth accumulated through liquid and illiquid assets (homeownership) under income risk and incomplete markets. Given the rich individual and spatial heterogeneity, our model is well-suited to compare people- to place-based policies aimed at reducing inequality.  Do moving vouchers (people-based) or reduction in housing regulations (place-based) enhance welfare relatively more for the poor? Moving vouchers only marginally increase the welfare of eligible households, and those who receive the vouchers tend to move to locations with lower house prices and wages. In contrast, lower housing regulations in Vancouver can substantially decrease the welfare gap between the rich and poor nationwide. As this policy increases housing affordability in more productive cities, it reduces the incentive for low-wealth families to move precautionarily to low housing costs locations. Lower housing costs increases the insurance value of high-income cities and allows for higher wealth accumulation through homeownership for poorer households.

Living in a Ghost Town: The Geography of Aging and Depopulation with Elisa Giannone, Yuhei Miyauchi, Xinle Pang and Yuta Suzuki 

In Preparation for the 2026 CRNYU Conference, Journal of Monetary Economics 

This paper analyzes the spatial heterogeneity of population aging and decline in Japan, revealing a stark contrast between rapidly aging rural areas and growing urban centers. Using spatially disaggregated data and a dynamic life-cycle spatial equilibrium model, we show that rural depopulation is driven by out-migration and low birth rates, exacerbated by lower productivity and higher public service costs. This spatial inequality creates a significant trade-off for the national government: sustaining local services in aging areas requires substantial fiscal transfers, impacting overall national efficiency. Our model projects the future trajectory of this unequal aging, highlighting the need for strategic policy interventions. We explore the design of place-based policies, specifically age-and-location-specific migration subsidies and fiscal transfers to support rural and older communities. The findings underscore the crucial role of government transfers in balancing regional equity and national efficiency in the context of global rapid population aging.

Mortgage Stress Tests, Interest Rate Shocks and Financial Stability 

Mortgage stress tests, a key macroprudential tool in Canada, assess whether households have sufficient financial flexibility to handle potential income reductions or increases in debt obligations. This paper analyzes their impact on mortgage credit, leverage, and house prices, as well as their effect on borrower delinquency behavior in the context of the recent interest rate hike. Using mortgage origination and monthly credit bureau data, this paper finds that when applied to a large set of mortgages, this policy leads to overall credit contraction and reduced leverage. Mortgage stress tests enhance financial stability by dampening the feedback loop between credit and house price growth and by reducing delinquency risks during periods of sharp interest rate increases. However, this effect is achieved primarily through a selection mechanism rather than by strengthening borrower resilience. The lower delinquency rates during the recent interest rate hike were not driven by lower leverage but primarily by the policy’s effectiveness in filtering out high-risk borrowers.

The Impact of Lending Shocks Across the Firm Size and Age Distribution with Aaron Pancost 

Financial frictions are often mentioned as an important factor affecting firms' growth, especially for small firms, yet few studies include the full size distribution of firms. Taking advantage of the universe of firms in the LBD, we analyze the causal impact of lending shocks on firms of different size or age. We find that in response to local aggregate lending shocks, on average, very small firms (1--4 employees) actually shrink, medium-sized firms grow faster, while very large firms (at least 500 employees) are unaffected. Firm size, rather than firm age, best describes the cross-sectional effects of credit shocks, although we do find that older (small and medium-sized) firms are less likely to exit following an inflow of credit, while young firms appear to be unaffected. 

Propagation of House Price Shocks through the Banking System

This paper analyzes the propagation of house price shocks through the U.S. banking system. Although only roughly 30 percent of the mortgages that originated between 2000 and 2005 were retained on the banks' balance sheets, I find empirical evidence that exogenous negative house price shocks impacted the banks' balance sheets. Between 2006 and 2010, banks that faced a larger drop in their capital-to-assets ratio induced by exogenous house price shocks contracted the supply of new mortgages by more. Besides the propagation of house price shocks through the banks' balance sheets, the same shocks are also propagated across regions since more affected banks contract the credit supply even in areas where economic conditions didn't deteriorate. I find that less affected banks expanded the credit supply mitigating the large contraction of the credit supply by the most affected banks. Most of the mitigation occurred within the regulatory banking system since shadow banks, that face less regulatory constraints, did not contribute significantly close the gap. The overall credit supply for mortgages contracted by 13 percent more in counties with a higher presence of distressed banks (10th percentile) than in counties with a lower presence of affected banks (90th percentile). Such contraction occurred in both home purchase and refinance loans.

House Prices and Consumer Spending: The Bank Balance Sheet Channel [New Draft Coming Soon]

I quantify the extent to which deterioration of bank balance sheets explains the large contraction in housing prices and consumption experienced by the U.S. during the last recession. I introduce a Banking Sector with balance sheet frictions into a model of long-term collateralized debt with risk of default. Credit supply is endogenously determined and depends on the capitalization of the entire banking sector. Mortgage spreads and endogenous down payments increase in periods when banks are poorly capitalized. I simulate an increase in the stock of housing and a negative income shock to match the decline in house prices between 2006-2009. The model generates changes in consumption, foreclosures and refinance rates similar to those observed in the U.S. between 2006 and 2009. Changes in financial intermediaries’ cost of funding explain, respectively, 13, 9 and 22 percent of the changes in housing prices, foreclosures and consumption generated by the model. These results show that the endogenous response of banks’ credit supply can partially explain how changes in housing prices affect consumption decisions.